Shaping the Government’s “To-Do List” for Tax Guidance

Last month, the Tax Law Center submitted a public comment with recommendations for the Treasury Department and the Internal Revenue Service’s 2022-2023 Priority Guidance Plan (PGP). In this post, we briefly explain the PGP – what it is, why it is important, who weighs in on it – and summarize our views on guidance priorities for the coming year.

By Chye-Ching Huang

The tax system could not run well without regulations and other forms of guidance. In some cases, provisions of the Internal Revenue Code (the Code) are ambiguous and require interpretation. In other cases, Congress mandates that Treasury and the IRS write rules in a certain area. In still other cases, guidance is used to address issues of tax administration such as record-keeping, filing procedures, or internal agency process. As a general matter, tax regulations, revenue rulings, and other forms of guidance are intended to “pick up where the … Code … leaves off” and help taxpayers “understand and meet their tax responsibilities.”

Informing the work plan

But there are more areas of tax law in need of official guidance than there are legal staff and other resources to meet that demand. The government needs some way to decide which guidance projects to prioritize.

That’s where the Priority Guidance Plan (PGP) comes in. Treasury and the IRS compile the annual PGP to identify, as well as prioritize, the various tax issues that should be addressed through regulations or other forms of guidance. Publishing the PGP also gives taxpayers more insight into what guidance projects Treasury and the IRS intend to actively work on.

To allow for public participation in the process, Treasury and the IRS annually invite the public to submit recommendations of items that should be included. Comments on the PGP come overwhelmingly from private interests like trade associations, law firms, and accounting firms. While this input is critical to ensuring the guidance needs of both taxpayers and the IRS are addressed, these comments often focus on issues only relevant to certain taxpayers, and often advocate for interpretations of tax law that benefit them specifically.

Our suggestions for the 2022–2023 PGP

Our comment, which comes from a public interest perspective, recommends that Treasury and the IRS prioritize regulatory projects that have widely shared benefits and are less likely to be raised by other commenters. If adopted, our recommendations would promote sound tax administration, encourage stronger tax compliance, and improve confidence in the fairness and integrity of the tax system. Specifically, we recommend that Treasury and the IRS pursue regulatory projects that will:

• Reduce opportunities for tax avoidance. We advise Treasury and the IRS to prioritize several regulatory projects that impose limits on certain types of planning that allow well-advised taxpayers to minimize their tax liabilities. For example, we call for Treasury and the IRS to overhaul existing “check-the-box” regulations that allow taxpayers to elect the tax status of their business entities for tax planning purposes. We also recommend that Treasury and the IRS prioritize regulations that prevent corporations from engaging in “basis shifting” used to avoid or defer tax. Our partnership-related proposals focus on inappropriate characterizations of income and other tax planning techniques by private equity and other investment funds. Finally, our array of proposals addressing transfer tax issues includes projects to collectively limit many opportunities for estate, gift, and generation-skipping transfer tax avoidance.
• Strengthen information reporting to increase voluntary compliance and support tax enforcement efforts. We recommend that Treasury and the IRS strengthen reporting requirements for art and antiquities brokers to prevent unscrupulous actors from artificially inflating the value of new acquisitions and improperly maximizing certain expenses or deductions on their tax returns. We also recommend that Treasury and the IRS use existing authority to require reporting with respect to cryptocurrency and other digital assets.
• Clear the guidance “pipeline.” Recognizing the staffing constraints on guidance development, we recommend that Treasury and the IRS prioritize the completion of projects that are already significantly developed. We also make several additional recommendations for projects currently under development, including those addressing spin-offs and previously taxed earnings and profits. In some cases, we recommend that certain long-standing projects could be moved forward by prioritizing parts of a guidance project that are either easier or more critical to get over the finish line on a “standalone” basis.
• Improve government accountability and transparency, and level access for taxpayers. Several of our recommendations are related to improving transparency by formalizing guidance, rather than relying on ad hoc private letter rulings or “closing agreements” into which the public has no visibility. We also recommend that the IRS continue to improve its processes related to frequently asked questions posted on its website.

Read our full comment here.

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